"They already have done it after the floods in Thailand, after the tsunami in Japan and the earthquakes in New Zealand.

"All those governments have done it and in every one of those cases small business and residential insurance is now affordable."

Mr Entsch says the Federal Government should pay the first $500 million in damages in the event of a natural disaster.

He says the money would be raised through a levy and would help insurance companies negotiate a cheaper deal with re-insurers.

"They need to take off the compulsion in relation to flood insurance, particularly in areas where there is no risk of flooding," he said.

"They also need to get governments involved in the catastrophe reinsurance market.

"In northern Australia we pay an extra $30,000-$40,000 a year to build a house because we build to cyclone specifications - that is not taken into consideration."

Mr Entsch says insurance premiums could be halved if the Federal Government amended its Strata Act.

He says body corporates are facing bankruptcy because their insurance premiums are calculated based on the cost to replace a building and there should be an option to insure the building for market value.

"By adding in four words, instead of just a compulsion to insure for full replacement value, if we were to add in there 'or market value' that would make a huge difference," he said.